Snubbing a recommendation by the Supreme Court, a federal appeals court in Washington, in a 2:1 decision, upheld patents issued to Myriad Genetics on two isolated gene sequences used to diagnose breast and ovarian cancer.

Myriad charges approximately $2500 to screen and offer counseling for the BRCA1 and BRCA2 mutation, both linked to breast an ovarian cancer. The mutations are found most commonly in Jewish women of Ashkenazi descent. Off patent, each test costs just a few dollars. Women who test positive have an 82 percent higher risk of breast cancer and a 44 percent higher risk of ovarian cancer in their lifetimes.

The lawsuit against Myriad and the University of Utah Research Foundation, which hold the patents on the genes, had charged that the patents are illegal and restrict both scientific research and patients’ access to medical care.

The majority’s decision drew a strong dissent from Judge William Bryson, who said it “if sustained, will likely have broad consequences, such as preempting methods for whole-genome sequencing.”

The case pitted Salt Lake City-based Myriad against researchers and critics who said Myriad’s patent on the BRAC genes found in breast tumors hindered research into the deadly disease. Myriad lawyers had sent threatening letters to the University of Pennsylvania and others, urging researchers isolating those genes to desist or pay royalties.

Reaction from anti-patent lobbyists was swift and intense, and filled up blog boards. This decision is “extremely disappointing,” ACLU lawyer Chris Hansen said in a statement, saying it “prevents doctors and scientists from exchanging their ideas and research freely, Human DNA is a natural entity like air or water. It does not belong to any one company.”

The ACLU had joined with the Association for Molecular Pathology and some 20 other groups in urging the court to declare such purified snippets of DNA as unpatentable.

“This is an outrage,” wrote Andrea Downing in the comment section of a Forbes.com piece. “We are flirting with a dangerous future when we say that a company can patent human DNA. How can the rationale be that human DNA is “different in form” – when the BRCA gene occurs naturally? Can we say next that we’ll allow a company to patent isolated genes that contribute to common traits like blue eyes and brown hair?

Although the decision will probably be appealed to the U.S. Supreme Court, the biotech industry is breathing at least a temporary sigh of relief, The majority decision, written by Judge Alan Lourie, addressed one of the prickliest issues concerning the patenting of genes: whether isolated gene sequences are eligible to be patented. The answer, the two person majority decided, is ‘yes’s.

“It is important to state what this appeal is not about,” Lourie added. “It isn’t about “whether is it desirable for one company to hold a patent or license covering a test that may save people’s lives, or for other companies to be excluded from the market encompassed by such a patent. Those questions are not before us.”

In addition to stating what the case is not about, Lourie mused that patents on life-saving drugs “would seem to be precisely the types of subject matter that should be subject to the incentives of exclusive rights” to encourage their development.

The very act of isolating sequences of molecules from the much larger DNA molecule transforms them into something useful. The court did reject two elements of the patents, one of which it had previously upheld. It held that the act of comparing a patient’s isolated gene material with a reference sample is an abstract mental exercise, rather than a patentable process. This was a nod to this year’s Mayo v. Prometheus decision, which reversed the Federal Circuit to hold that a process based on observing changes in a metabolite in a patient’s body was not patentable. Prometheus doesn’t address the patentability of isolated DNA, however, so Myriad’s victory could be short-lived if the plaintiffs appeal.

“There’s still a great deal of uncertainty because the Supreme Court has not had the final word on this issue,” said Antoinette Konski, an intellectual property lawyer with Foley and Lardner in Palo Alto, Calif. “And that’s disappointing to the industry.”

In arguing the case, the Obama administration had proposed prohibiting patents on gene sequences that are identical to those found in the body. Administration lawyers imagined a “magic microscope” (“an invention in and of itself, although probably not patent-eligible,” Lourie quipped) that could see into the body to determine if a patented sequence was identical to a naturally occurring one. But Lourie rejected that idea, saying visualization alone “does not cleave and isolate the particular DNA; that is the act of human invention.

Bruce Wexler, a lawyer with Paul Hastings, said the decision should be comforting to the biotech industry. “The Federal Circuit’s rationale is straightforward: an isolated gene is different in form from any naturally occurring material and therefore it is patent eligible,” he said in an e-mail. “The Federal Circuit also reasoned that the Supreme Court’s Prometheus decision didn’t apply – even though it recognized that the Supreme Court asked for reconsideration of Myriad in light of Prometheus. It remains to be seen if the Supreme Court will agree.”

This issue will undoubtedly also move beyond the courts to the political arena to resolve the ambiguities around patent law and genetics. “Disapproving of patents on medical methods and novel biological molecules are policy questions best left to Congress,” Lourie said.

The court noted that all of the patents expire by Dec. 18, 2015, after which the public will be free to use any technology disclosed within them. Similar expirations have spawned a large generic industry around so-called small-molecule drugs created through genetic engineering that was highly proprietary and profitable a few years ago.